Financial Accounting Standards Research Initiative

In class yesterday, I stumbled upon an interesting apparent inconsistency between accounting for pensions and the accounting for compensated employee absences, which I had taught several weeks ago. When teaching my students about accruing for vacation pay, I observed that it seemed that if we knew for certain that employees were likely to get a raise [...] Read more > >

I just read an article (p. 22) about the CPA examination changes effective Jan. 1, 2011. The AICPA official release can be found here. There are several major changes taking place at the same time. I list three below: 1. Switch from two case-based simulations to six or seven task-based simulations. 2. Testing of the organization and use [...] Read more > >

About a year ago (March 12, 2009) the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Entities held a hearing titled “Mark-to-Market Accounting: Practices and Implications.”  The Committee members directed several hours of fairly hostile questioning to FASB Chairman Bob Herz and SEC Chief Accountant Jim Kroeker.  If you have not seen [...] Read more > >

Mark Evans of Indiana University will lead our next roundtable discussion, Wednesday March 3rd, 11am ET).  Here is the abstract from his recent paper, written with Leslie Hodder and Pat Hopkins, exploring fair value in commercial banks: For a sample of commercial banks during 1994–2008, we find that accumulated fair value adjustments for investment securities are [...] Read more > >

The SEC essentially punted today on the decision to adopt IFRS in the U.S.  Acknowledging that the SEC is in the same position they were in November 2008 (when the proposed roadmap was originally issued), Mary Schapiro said the SEC hopes to be in a position by 2011 to make this decision. One of the [...] Read more > >

A big thanks to Naomi and Shayne for their comments today. It was a great Round Table. Thanks to everyone who participated as well. We welcome any comments or follow-up questions regarding today’s Round Table topic. Read more > >

The February 23rd (4pm ET) Roundtable will feature a discussion of Emissions Trading Schemes, led by University of Colorado research Naomi Soderstrom, along with insights from the Assistant Project Manager on the FASB's Emission Trading Schemes project, Shayne Kuhaneck. Click here for details on the session. * UPDATE: The archived video of this Round [...] Read more > >

The February 23rd Roundtable will feature a discussion of Emissions Trading Schemes, led by University of Colorado research Naomi Soderstrom, along with insights from the Assistant Project Manager on the FASB’s Emission Trading Schemes project, Shayne Kuhaneck. Many accountants have only passing familiarity with Emissions Trading Schemes.  As the FASB project page describes, Emission trading schemes to [...] Read more > >

Mark Evans, Leslie Hodder and Pat Hopkins just posted a paper on SSRN indicating some benefits to fair value accounting in financial institutions.  From the abstract: For a sample of commercial banks during 1994–2008, we find that accumulated fair value adjustments for investment securities are positively associated with realized income from investment securities in the following [...] Read more > >

On Wednesday, Feb 3rd, 11 am ET, we will be joined by Steven Orpurt of Pepperdine University. Steve will be discussing his paper, entitled “Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows and Earnings? This work is co-authored with Yoonseok Zang, also of Singapore Management University, and was recently published in [...] Read more > >

To what extent do lenders or credit analysts care about lease renewal options? In the proposed lease accounting model, lessees will capitalize the longest lease term that is more likely than not to occur. This means that renewal periods that a lessee is not obligated to renew will be measured as part of the lease [...] Read more > >

Stephen Ryan (NYU) joins FASRI to talk about his recent research on the fair value option in the banking industry.  Stephen is one of the most respected accounting academics studying banking and financial instruments these days, so I expect people will have plenty of questions beyond the research study that will form the heart of [...] Read more > >

Richard Mergenthaler has a paper on SSRN titled “Principles-Based versus Rules-Based Standards and Earnings Management.” When I read the title I thought for sure the article would argue that principles-based standards lead to more earnings management because there was more flexibility. To my surprise, the paper presents arguments that rules-based standards lead to more earnings management. [...] Read more > >

I was excited this past week to read that the IASB recently published a second exposure draft on a portion of IAS 37 Provisions, Contingent Liabilities, and Contingent Assets. I know, excitement might be too strong of a word, but I was looking forward to seeing whether the IASB’s decision on how to measure onerous [...] Read more > >

Typically at the start of every New Year, we spend time thinking about the prior year and all the interesting and exciting events that have happened. 2009 was certainly a banner year for accounting standard setting. As I was thinking back over all that happened and trying to determine what was the most surprising thing [...] Read more > >

An interesting article was posted on SSRN last month titled Rules-Based Accounting Standards and Litigation by Dain Donelson, John McInnis, and Richard Mergenthaler. The article discusses the association between rules-based standards and litigation and whether rules serve more to convict or to defend firms. In the conclusion, the authors write: Overall, we find support for the [...] Read more > >

Jeremy summarized nicely some of the discussion points that Jim raised during his discussion with Jeffrey Hales.  I won’t repeat his summary.  However, I found Jim’s comments to be particularly insightful today.  I came away with some very good clarification of a few issues. Here’s one that I found particularly interesting: Regarding his objection to the “management [...] Read more > >

* UPDATE: The archived video is shown above. Please note that the welcome screen is displayed for the first 11 minutes and 10 seconds. You’ll want to skip to 11:10 in the video to begin seeing the discussion. We just finished a great Roundtable with Jim Leisenring from the IASB. We will get the video online [...] Read more > >

In my technical accounting research class and in recent consulting work, I often have been reminded of the need for reasoned judgment in our profession. With the general move toward more objectives-based standards (using the SEC parlance), the need for professional judgment only will increase.  Recognizing the need to teach and understand what professional judgment [...] Read more > >

Somehow I ended up on the mailing list of Risk.Net, which hails itself as “The world’s leading monthly magazine dedicated to the risk management and derivatives industries.”  In this week’s top story, headlined “Abuse of revised IFRS standards “inevitable” – IASB’s Leisenring“, Jim is quoted as expressing concern about using management intent to determine how [...] Read more > >

On Tuesday, Jan 12th, 4 pm ET, we will be joined by Jim Leisenring. Jim is currently a member of the IASB, where he has been serving since 2001. Given his prior role as a director and later a board member at the FASB, Jim arguably has more standard setting experience than just about any [...] Read more > >

I hope everyone is refreshed and ready for the new year — and a challenging one it will be for standard setters, with the convergence deadlines rapidly approaching.  To get you started, here are some thoughts on Principles vs. Rules, from Paul Miller and Paul Bahnson, academics who have a regular column (The Spirit of [...] Read more > >

I’ve been thinking about something Jeff Wilks said during this week’s FASRI Roundtable and something that occurred to me during the conference.  In short, it is the notion that it might be useful to consider perspectives other than the customer consideration model for revenue recognition.  (Forgive me, Jeff, if I misunderstood your comments Wednesday, and of [...] Read more > >

How often do we get to use big esoteric words from philosophy when we are talking about accounting standards?  Not often enough! Usually, the only philosophical terms we use are ‘normative’ and ‘positive,’ and I think many of us are pretty comfortable with the notion that standard setters are trying to answer normative questions (what should [...] Read more > >

We have already had a couple great posts on the FASB/IASB Financial Reporting Issues Conference by Ray and Rob.  I’d like to add a comment on something that struck me over the weekend. One of the important issues in revenue recognition is the question of whether a company is providing a good or service in return [...] Read more > >

Are you comfortable with allowing management to choose whether to recognize unrealized gains or losses based on management’s intent to hold securities to maturity?  How about basing the timing of revenue recognition on the firm’s business model?  Differences in intent and business models might very well alter what information users find relevant.  However, intent and [...] Read more > >

One issue that came up repeatedly for me at this weekend’s FASB-IASB reporting issues conference was that of the apparent clash between the objective to provide relevant information through financial reports and the objective to maintain consistency with the conceptual framework’s definitions of assets and liabilities. An example illustrates the nature of the problem: consider a [...] Read more > >

As posted here, FASRI is issuing a call for research consultants to conduct revenue recognition studies.  This call is a little different from the usual ‘call for proposals’ because applicants must be willing to work closely with FASRI and FASB staff to identify research topics that will be most helpful in staff and Board deliberations.   [...] Read more > >

The Financial Accounting Standards Research Initiative (FASRI) is issuing an open call for academic researchers to serve as Research Consultants for a Revenue Recognition Research Project.  Research consultants will work with members of FASRI to develop rigorous research studies likely to be helpful with the FASB and IASB deliberations on revenue recognition and related topics.  [...] Read more > >

For most of this decade, the Financial Reporting Issues Conference has been my favorite accounting event of the year.  Taking a Bayesian perspective, I also view it as the most informative:  every year, what I learn changes my beliefs more than any other conference. I will be writing some posts about the substance of the conference, [...] Read more > >